7/10/2007 @ 12:35PM

Vivo Telefonica?

Telefonica may be close to taking full control of Brazilian mobile phone joint venture Vivo from Portugal Telecom–if public comments by Telefonicas chairman Cesar Alierta are to be believed.

Spokespersons for both companies refused to deny a report in The Financial Times that
Telefonica
was close to buying Portugal Telecoms 50.0% holding in Vivo for 3 billion euros ($4.1 billion).

We have maintained for months that we are interested in Vivo and would like to buy 50.0% of it at the right price, said a spokesman for Telefonica.

It is perhaps unsurprising that
Portugal Telecom
has been slow to relinquish its stake in Vivo. Brazil is the largest telecom market in Latin America and the seventh-largest wireless market in the world.

In addition to the owners of Vivo,
Telecom Italia
and
America Movil
, owned by Carlos Slim Helu, dominate the Brazilian market.

Following a restructuring at Vivo last October, which led to an 11.0% drop in operating costs of 2.1 billion reales ($1.1 billion), the company has been making profits, making up for a disappointing start to 2006.

Telefonica already has a controlling stake in Brazilian fixed-line operator
Telecomunicacoes de Sao Paulo
and is hoping to firm its grip on the market through the purchase of Vivo.

According to a source familiar with the negotiations, Portugal Telecom will want to ensure that if it does sell its stake in Vivo, it has alternative purchases.

Portugal Telecoms spokesperson refused to comment on reports that the company had made an unsuccessful bid for Oi, a fixed-line operator.

According to Nomura analyst Martin Mabbutt there was some good news for Telefonica shareholders hidden in Aliertas comments. The chairman indicated that, while a spate of mergers and acquisitions was likely to occur on a grand scale across Europe, Telefonica was unlikely to get involved with this, beyond its designs on Telecom Italia.

This will come as something of a relief to shareholders, who have not always agreed with Telefonica’s expansionary moves, Mabbutt wrote in a note to clients.

In April, Telefonica, in partnership with Italian lenders Intesa Sanpaolo and Mediobanca, insurance firm Generali and the Benetton family, agreed to purchase an 80.0% stake in Olimpia, the majority shareholder of Telecom Italia, for 4.1 billion euros ($5.6 billion).

According to Mabbutt, Telefonica has produced the best operating performance of any of the large incumbent telcoms, including Deutsche Telekom and Telecom Italia, which made the Spanish firm’s shares good value, despite the fine of 151.8 million euros ($206.9 million) that was slapped on it last week for unfair pricing in Spain.